They have a neat history.
Started out making airplane instrumentation for the Convair airplane.
Then a small start up (named Intel) wanted them to make a box that would heat chips to simulate the environment that new chips called microprocessors would operate in.
When the personal PC evolved they had already developed a pick and place technology in their test handlers. This was needed because the microprocessors had wire connectors coming out of all 4 sides. While being slid in gravity feeders the wires would get bent and stick together. Those kinds of chips were called quad flat pacs.
So instead of sliding down rails, boosted by air pressure, they were individually picked up by vacuum, placed in boats (which held three at a a time) and then tested.
As the complexity of the tests became greater and the time of test was minimized to reduce cost of test, the chips became over heated and melted, or received a lesser performance rating was scored (thus a megahertz rating on microprocessors).
This brought around the need for cooling the chip during the test, increasing the megahertz rating and the average selling price of the higher scoring chips.
So now they heated the chip and cooled it during the test. All of this was uncharted engineering as they reinvented themselves several times as the PC cycle grew them from 75,000 to 200 million in revenue.
That's when the stock went from giving a stock dividend to a cash dividend along with two 2 for 1 splits ( 1970's to 1990's.
Fortunately, they never had debt and kept cash as they went on a merger/acquisition plan that rolled up all of the other types of handlers:
Rasco, with the number 2 market share in gravity ( it took them 5 years to be # 1 market share over Microtest (who was bought by Xcerra - who they just now have bought)
Ismeca, with the number 1 marketshare in turret handlers.
So that gave them global market share in all of the types of handlers.
The fast growth was under Schwann - who bought Delta and started the ball rolling. Delta was run by a smart MBA from the east coast named Donahue (now Chairman of the Board.
Scwann was very stockholder friendly - incresed the dividend and had the stock splits.
Doanhue maintained the dividend , even in tough times, but never increased it. He wanted to wrap up the test handler global market and built the world wide service structure and made the Rasco and Ismeca acquisitions. He was/is very conservative and knew that a LOT of capital would be needed to achieve global dominance. In 2008 he bought Rasco from Dover and knew he could make a better gravity test handler than Microtest did (also owned by Dover) Dover sold Microtest to Xcerra. Xcerra tried t build pick and place , but never sold a handler and never really had the expertise Cohu had developed in parallel pick and place. In 5 year Rasco was the faster machine with pick and place and took # 1 market share.
Ismeca was a turret handler - born from swedish sewing machine makers. The company that owned ismeca saw the semiconductor business slowing down and Donahue wrote the CEO a letter asking if there was interest in selling the division. Coincidentally that CEO had been very profitable making the blades for european wind mills creating electricity.
That purchase wrapped up the global market.
Donahue had spent the cash horde two times and rebuilt it with market share gains and superb engineering.
Excerra was the last big competitor - a competitor that outsourced the production of their handlers, Cohu had built a better mouse trap for decades and overcame Microtest's marketshare ( now owned by xcerra).
The beauty of buying Xcerra was they brought to the party the largest installed owner base of gravity testhandlers.
Test handlers run 7/24/365, They are only down for maintenance, parts replacements, and dedicated test kits ( needed when the siz of the chip tested is shrunk - these are the rails that the chip slides on/within).
It is a very good business. Margins are in the mid 60 - 65%. They are steady revenue,ongoing constantly - thus labeled consumables.
My hunch is Microtest sold extended warranties on their equipment. They have great "contactor footprints" on their existing test handler ownerbase - the largest out there. They sell 100% of their handlers, the new contactors (the part that wears out testing the chips).
If one extrapolates the market share penetration Xcerra has with their installed owner base to the owner base of the combined Xcerra and Cohu - the annual revenue would approach 300 million!
Muellers goal is that to be achieved in 3-5 years. That's 180 to 195 million in gross margin, for a company that had opex of 140 to 145 million.
They make money with out selling a new system - at last stable profitability.
Huge profitability with the now new plethora of chips being made!
What started as a Microprocessor chip handler now includes: logic and graphic microprocessors ( PC's ,Laptops and cloud computing), Application processors (Smartphones) RF chips Internet of things) 5G - the next big 3-5 year wave and it started this quarter PLUS all the new 5G smartphone chips, Automotive the radar sensors on all corners of luxury vehicles (that will work its way down to lower end models driving 17 million new vehicles a year times 6-8 sensors plus the wiringgharness and printed circuit boards - Xcerra again).
Donahue has run the gammit and allocated capital masterfully. Mueller is a young hard working manager who learned about lower cost manufacturing from the front end chip equipment makers. He's the young buck chasing new handler applications and probably living in a plane most of the time.
Jeffrey Jones was the CFO of SBSE ( a company I owned a large position in - it was bought out by GE). His working of buying the step up written off inventory, impaired intangibles, transitions expenses and severance pay will use up the cash saved for the first year and maximize free cash flow (minimize taxes)for 5-6 years out.
If you can get as much Cohu as you can, but expect it to be a 2-5 year triple or more.
I think Donahue will prefer to buy back stock before he bumps up the dividend. I'll talk to him about the stockholders time to be rewarded for leaving all that cash to his brilliant reallocation.
Once the debt is payed off and some stock is being repurchased - the dividend will grow quickly - much like it did at AMAT and LRCX once they merged and consolidated their markets in a very similar way.
It is a buy and hold stock over the very long run IMO.
Buy it, buy more if and when it gets cheap - throw it in a drawer and forgettabout it.
A retirement stock to live off of for the rest of your life.
If it riples and oes a two for one with anothe triple - I'll sell it.
Up until then - my vision of the future is more and more chips and Cohu will be handling every one of them!
A backend Sleeper stock for all time IMO
SOMEBODY LIKES THE 2 CENT LOSS OF LAST QUARTER!!!
screencast.com
YEEHAWWW YIPPEEEE !!! WE'VE GOTTA TIGER BY THE TAIL!!!!!
Bob |
